Home Buying in 92688>Question Details

jeff, Home Buyer in Rancho Santa Margarita...

We are purchasing a home a home is Southern California. We currently live out of state and are returning after a 9 year absence.

Asked by jeff, Rancho Santa Margarita, CA Sun Sep 15, 2013

We have played the "Offer- Counter-Counter Offer" with several properties. We just received a "Buyer to pay the difference between the selling price and the Appraised value to the seller at closing". We are offering $10,000 over asking, the home will most likely appraise for several thousand below our offering. The selling agent is expecting us to pay an additional "Payola" to the sellers in order for them to accept our "Over Listing" offer even if the appraisal is below our offer, yes you read that right. Have professional Realtors in California stooped beneath the sleazy used car salesman tactics of long ago? "The listing price of the car is $10,000 but since you have shown interest in the car it will cost you $15,000 to own it"! As a professional car sales person, you could go jail and be obligated to honor a publicly listed offering of a vehicle for sale that a prudent individual could consider bonafied and without error. Apparently in real estate it is the wild-wild west!

Help the community by answering this question:


Unfortunately, what you are experiencing is a reality. It's all about supply and demand and, chances are, all offers are over listing price. After all, prices and interest rates are going up. This is precisely why cash is king. Last week we had 8 cash offers within a few hours of the home being listed. Since the sellers were in a hurry, the financed offers didn't have a chance. We will be closing this week. So...the fact that you are even being considered is a blessing in itself.
Have your agent meet the appraiser with comps in hand. The appraisers appreciate the effort and most understand what is happening in the market and adjust their appraisals accordingly.
You may not have as much of a deficit, or any, as you think. The most important thing is that your agent is looking out for you, it isn't about them...it's all about you. Make sure you still have plenty of money in the bank at the end of the transaction and that you can really afford the payments.
Also..... Make sure your agent shows you comps so you can be sure you are not overpaying unnecessarily in the first place
1 vote Thank Flag Link Sun Sep 15, 2013
This has been an awesome forum, make no mistakes about it, we are trying to stuff a size 10 foot into a size 8 shoe based on what the local market is allowing to take place.

I am completely at an understanding of where the market is at, where it has come from and mostly where it is going. I am not in a hurry to make a mistake but having to wait the past 6 months to get into a position to finally be able to be buyer has been most costly to myself in more ways than one.

I appreciate a clear perspective of my situation that has been provided here by all. Agreeing on what is reality and agreeing on what is ethical are not always one in the same.

I will make one last note as a buyer, "Write the Deal"! I have had two Realtors who refused to "Write the Deal" as it was asked on two separate properties where each sold for UNDER my offer, that's with approved funding and 15 day closing in hand (not to mention $200K cash). I am on my 3rd Realtor and I must say I am not very impressed with what I have seen thus far. Where have the Terry Mungeon's of the world gone?

Jeffrey Seyler
2 votes Thank Flag Link Mon Sep 16, 2013
Well if it were me I would have said write it or I will just get someone else right this second to do it. I mean seriously here we are not short of realtors in the O.C. Any how my home here in the O.C. which I bought 1 year ago had 12 offers on it. I got it:) Here is who we used and I think you will like him.
He will write what you want. He told me he works for us.
Mobile: 949-463-1969
Email: daveanderson@cox.net

Harcourts Prime Properties
Nice man and easy to work with. Tell him Judy says hi:)
Flag Mon Sep 16, 2013
You are not obligated to purchase the property and the seller is not obligated to sell the property. If you make an offer for a million dollars ad the property appraised at $300,000 the seller doesn't just have to sell you the home for appraised value because that's what it's said to be worth. The bank will only lend on appraised value in most cases and you would have to come up with the difference between appraised value and your offer price unless otherwise negotiated. That's not the Realtor being sleezy or unprofessional, that's the way real estate works.
2 votes Thank Flag Link Sun Sep 15, 2013
Well said James. What buyers are willing to pay for a property and have recently paid for similar properties are the basis for setting home values. Home values change over time and are not the same as three years ago, and definitely not the same as 6 years ago. As a seller of a property in high demand - and expected to increase in value over time - I don't believe I am resorting to sleazy used car salesman tactics when I give a buyer the opportunity to purchase a highly desirable property that will increase in value.
Flag Thu May 8, 2014
Agreed James, we were more than prepared to pay a premium over the asking price and did so by several thousand. Being asked to pay an undetermined amount of "Premium Penalty" to the sellers outside of escrow in the form of cash at closing is nothing less than "Payola". Our down payment precluded any disappointment that could have possibly come from a blind appraiser. A loan was guaranteed for much much more than what was needed to purchase this home due to the sizable down payment. So what you are saying is that Real Estate is a sleezy business?
Flag Sun Sep 15, 2013
So, was the strategy you described successful in making you the winning bidder?

This entire system has been fueled by excessive buyer demand - there is nothing illegal about it. A listing agent KNOWS they're in the catbird position, and are merely doing their best to get their sellers not only the highest offer, but also the one most likely to close escrow - meaning putting in clauses such as the one you described.

If YOU don't agree to it, most likely someone else will.

Actually, though, I'm surprised to hear that such competition is going on - in my experience things were much more competitive a few months ago.

In the past two months the number of available listings has doubled, and the number of buyers has been substantially reduced. ( As cash investors have fled the market, due to prices now being 20-25% higher than they were in January.)

What I am now seeing is homes on the market longer, and prices coming down, for the majority of listings - except for only the most desirable properties - which may be the type of property you're offering on.
2 votes Thank Flag Link Sun Sep 15, 2013
It sounds like the intent of that counter is not to get "payola". That would be pretty brazen, so therefore I don't think that's the intent. Rather, I think the agent is assuming that there will be problems with financing if the home doesn't appraise at value, which is sometimes the case. If the appraisal is short of the purchase price, and there's not sufficient downpayment to make the loan work, then the seller either has to lower the price (unlikely in this market), or the buyer has to come up with the extra downpayment (or they can meet in the middle). But that's not to pad the pocket of the seller; rather, it's to make the loan work, which is of the utmost importance to any seller.

But, if there's sufficient downpayment, then frequently the buyer is not required to bring in any additional money. The lender will simply adjust the debt-to-income ratio, and if it still remains within guidelines, a low appraisal will fly just fine. Most lenders will use the lower of the appraised value or the purchase price, and if the buyer can still avoid PMI, (ie: the adjustment still gives the buyer 20% equity), and stay within guidelines, then it can work. Honestly, I think the intent of the counter may have been misperceived.

Personally, I wouldn't sign a contract with that clause, because if the appraised value comes in at 10K lower (for instance) than the agreed-upon purchase price, and it does not put the brakes on the loan, and the seller is still getting the purchase price they want, then to insist that the difference goes to the seller is a pretty strong-arm request in my mind, even in this market. But again, I think the intent of that clauser may have been miscommunicated, and a talk betweeen agents will confirm that, and perhaps the wording can be revised.
Web Reference: http://HIghcrestRE.com
1 vote Thank Flag Link Sun Sep 15, 2013
We are putting 30% down, the appraisal will have no effect on our ability to get financing, we are already Prequalified for a loan amount of upto $400,000. The difference was to be paid directly to sellers outside of escrow at closing, there is no confusion as to what the intent was.

We refused to accept the condition on the same premise, our offer was fair, firm, 5% over all recent comps within 60 days of the recent market bumps. Greed will catch up these and other realtors like them, this has not been an anomaly experience.
Flag Sun Sep 15, 2013
This often happens with multiple offers on a desireable property people want. You have 5 different buyers submiting offers on a home. The Seller could likely take the full priced offer but with low inventories some buyers will pay a premium (above list price) to get the home they desire. In that case why would a Seller say No. If a buyer is willing to pay above list price even above appraisal that is their choice. If in your case the property is not worth your offer price and you are not willing to payt the difference of appraisal your best option is to walk away. No harm in that.
1 vote Thank Flag Link Sun Sep 15, 2013
Where are lines of ethics drawn in this, being told in order to be considered for a open purchase of a Listed Property you have to pay in cash to the sellers outside of Escrow an undetermined amount CASH at closing! Using my given example from above, how does this not cross any boundaries in a regulated industry? We actually had to agree to pay an uncertain FEE to purchase the home without knowing what that fee could possible be! If Nancey Polosi was the agent I could possible accept this as" It is What it is", but it's not right, in any market under any condition.
Flag Sun Sep 15, 2013
Looks like you got a really good answer below.

Let me know if you need a purchase loan for the property or want to get pre-approved (this will increase the chances of your loan being accepted) because I can certainly help you out there. You can call me at 408-352-5147 or email me at AGreer@themortgageoutlet.com. You can check us out at http://www.TheMortgageOutlet.com. I will look at your situation and present you with some options.

Alex Greer
NMLS #1056079
1 vote Thank Flag Link Sun Sep 15, 2013
After the extraordinary run-up of prices earlier in the year (because of a very low inventory of homes for sale), prices have plateaued or come down a little.
However, during the run-up, it was somewhat common for sellers/listing agents to protect against the "appraisal lag" when the appraisals didn't keep up with the rise in prices.
When I represent a buyer, I provide a Market Evaluation, just as I would for a seller marketing his home. Their asking price and your offering price can't realistically be evaluated without knowing the market value of the home.
You may want to find another home, or at least negotiate an acceptable minimum for the appraisal to protect yourself. This would depend on whether you would be comfortable increasing your downpayment at all to make up for a low appraisal.
There is nothing "heaven-sent" about the appraisal... just one person's opinion. However, it does control the loan/downpayment, so you need to prudently protect yourself.
Their offer of the home is NOT an "actionable half-of-an-offer" that you can force them to accept because the put the home on the market at that price.
Another help that my buyers have is my Buyer Cash-Back, which amounts to several thousand dollars they don't have to come up with.
So, in conclusion, you should at the very least set up a minimum acceptable appraisal value, so you don't get blind-sided by an appraisal that makes it difficult or impossible for you to complete the purchase.
Hope this helps,
1 vote Thank Flag Link Sun Sep 15, 2013
I also don't agree with Cindy's comments at all. Every market is different and if inventory is low, which it is here, many buyers are willing to pay more to get the property they want. I see it often. The value is in the eye of the beholder.
1 vote Thank Flag Link Sun Sep 15, 2013
If you have the cash and you were sincere about your offer and really want the property, what difference does it make to you. The price is the same. This is protection for the seller that if they accept your offer, you will go forward with the sale. If the property doesn't appraise, you wont get financing on your offer price, you will only get financing on the appraisal value. So they just want to be sure you are willing to pay the difference in that price. Nothing 'sleazy' about it. You are obviously already aware the property is not going to appraise, so I dont understand what the problem is.
1 vote Thank Flag Link Sun Sep 15, 2013
You mostly missed what the sellers and the agent were asking for. My funding for purchase is approved, the actual appraised value has no consequence to the funding amount due to the sizable down payment for the purchase of the home. What was being asked is that we pay the SELLERS the difference between our Offer Price and the UNKNOWN appraised value of the home in CASH at closing. So if the home appraised for $425K and our offer was at $450K we would owe the sellers an ADDITIONAL $25,000 IN CASH at closing, there is no reasonable explanation for this activity. It violates underwriting laws and is fraudulent. http://www.dre.ca.gov/files/pdf/Escrow_Info_Consumers.pdf page 28.

Regardless of how COMMON this may be, or if it's a SELLERS MARKET.
Flag Mon Sep 16, 2013
Hi Jeff,

It has been like the wild west this year. Hopefully, however, you are working with a wise Realtor?

I would never advise a buy to sign that they pay the difference between list and appraised value. That just seems wrong to me. Why would you want to pay more for something than it's worth?

If you agent is advising you to sign it...get a new agent. Not all Realtors are sleazy. Don't buy into the game.

Inventory levels have improved somewhat and there are fewer buyers on the market now...find something where you don't have to play that game there are fair deals and fair agents out there!! I promise!!

Cindy Davis, Broker
SD Home Source Realty
Phone: (619) 379-8616
Email: cindydavishomes@gmail.com
Web: http://www.1sandiegohomesales.com
CA DRE #01363537
1 vote Thank Flag Link Sun Sep 15, 2013
May seem sleazy but when it's a sellers market, the sellers, (not the agents) do get to call most of the shots. But your agent should be able to give you good guidance as to what the true market price is on any given home.
Many of us in the Orange County market are seeing a stabilization in pricing occurring right now, prices still going up but not like the last 6-9 months.
I hope you get the home you want at a price you are comfortable with.
1 vote Thank Flag Link Sun Sep 15, 2013

I was out at some open houses today in Rancho Santa Margarita and did note that ether is a bit more inventory in certain areas, and therefore a bit more competition.

Although everyone in this forum has been correct with respect to the OC market as a whole, it does not preclude your ability to request some seller concessions towards closing costs, perhaps $5k. That would diminish your exposure.

Prudence does pay dividends so I'd strongly suggest you get a formal DE (underwriting approval) before the offer is finalized. This will enable you to meet the contingency date with a full understanding of the situation and therefore make in informed decision thereafter.

As a National Direct Lender headquartered out of Orange County, I'd be happy to facilitate this requirement for you right away, within 24 hours. Better safe than sorry, right?
0 votes Thank Flag Link Sat Oct 12, 2013
No monies should be exchanged outside of Escrow. Run from this transaction and, if your Realtor even suggests you do this, run from them as well. As I said before, it's about YOU, not your agent.
It sounds like you are ready to purchase and have the money to play the "over asking" game that is today's market but.....do it with an ethical agent that warns you about situations like this.
Please keep me posted on what you decide to do.!
Cindi Powalski, BS, CHS, SFR, SS, CNE
Lake Forest, RSM, MV
0 votes Thank Flag Link Mon Sep 16, 2013
Let's word this differently.

Background - For at least 6 - 9 months sellers in the most desirable areas of OC have been successful at "removing the appraisal contingency" of the purchase contract. Meaning more buyers than sellers (nothing unethical about that). Also, appraisals are for banks risk assessment. Not necessarily linked to what a ready, willing, an able buyer thinks a house is worth. Appraisers are coming off a low ( or lower) market of 2011-2012 too. Have sellers "overshot" the market ? yes.
Is this industry built on greed? yes. The real question is? how strong is your paper. Make no mistake , the market is tight.
0 votes Thank Flag Link Mon Sep 16, 2013
If I were you I would rent for a few months. Interest rates are going up and each month I see more stuff sitting for longer than before. No need to put up with an agent like that. Just find another one. This is my opinion and it fits in with what I have read over and over about what is happening now.
0 votes Thank Flag Link Mon Sep 16, 2013
Jeff, first off, I think the best response to your question was by Bob Phillips. I work mostly with Buyers and I really can relate to the frustration you are feeling. In my opinion, I don't think the listing agent is being un-ethical. His Agency is with the Seller and his obligation in a nutshell to you is to be Honest, Fair and to perform his/her duties in good faith.
I am pretty certain that if yor Agent is a good one, you are going to end up in the right place at the right price, maybe not today, maybe not tomorrow, but eventually! Hang In There!
Al Burnham OLYMPIC REALTY 949-422-7374
0 votes Thank Flag Link Mon Sep 16, 2013
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